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How to Make a Trade — What Can You Invest In?
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What Can You Invest In?

What Can You Invest In?

Since SprinkleBit is designed to help you learn how to invest in the stock market, we'll focus on stocks, the most basic and versatile investment type.

A stock represents a share in the ownership of a company. If you own a share in a company, it means you own a part of the company, its assets and earnings, as well as all the risks that the company is involved in. Public companies have hundreds or thousands of stock owners. Each owner contributes a little towards the capital of the company. By holding a company’s stock, you become one of the many owners (shareholders) of a company and have a claim to everything the company owns.

“Although it’s easy to forget sometimes, a share is not a lottery ticket... it’s part-ownership of a business.” — Peter Lynch

Common Stock: This is the type of stock people usually mean when they talk about stocks. Common shares represent ownership in a company and a claim (dividends) on a portion of its profits. Over the long term, common stocks are known to yield higher returns than other investments. Yet this higher return also comes at a cost as common stocks are also the most risky investments. If a company goes bankrupt and liquidates, the common shareholders will not receive any money until the government, banks, creditors, bondholders and preferred shareholders are paid.

Some companies have classes of their common stocks. One class has more value, voting rights and other privileges that the other class. A good example is Alphabet, Google’s parent company. They have two listed share classes that use slightly different ticker symbols. $GOOGL shares are the common-stock Class-A shares which have the typical one-share-one-vote structure. $GOOG shares are Class-C shares, meaning that these shareholders have no voting rights at all. The third type of shares, Class-B, are held by founders and insiders and grant 10 shares per vote. Alphabet’s Class-B shares cannot be publicly traded.

Preferred Stock: Preferred stocks represent some degree of ownership in a company, yet they don’t usually come with the same voting rights. Unlike with common stock, which has variable dividends that are never guaranteed, owners of preferred shares are usually guaranteed a fixed dividend as long as the company is in business. Another advantage is that in the event of liquidation, preferred shareholders are paid off before common shareholders (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to repurchase shares from shareholders at any time for any reason, usually at a premium.

Watch a video recap of this page, and Tap Next to learn about different categories of stocks.